As confusing as you might think factoring in Canada is relative to how it works, what it costs, what are the benefits, what is the downside … we firmly believe there is only one thing you need to know and make sure of .
What is that?
It is simply that a factoring or receivable financing solution works best when you pick the right partner firm!
We all either have heard, or basically understand the basics of receivable financing in Canada.
Compared to bank financing or other forms of business financing arrangements receivable financing in Canada has some key advantages – you can get approved fairly quickly of course, because essentially the only collateralized asset in this type of financing is the receivable itself. Once approved the basic beauty of factoring in Canada is that the facility you set up grows with you; remarkably you can actually say the you at this point have negotiated an almost unlimited supply of working capital.
When you are relying on your current cash flow and the profits that come from being generated in your business the challenge to grow you business and expand to the next level is very daunting.
Let’s get back to our basic premise though – that it all comes down to choosing the right partner firm to factor your receivables with. The relationship that comes out of that financing is clearly key to your success and long term growth. Factoring, aka receivable financing in Canada can be very confusing if you don’t consider yourself an expert in this area of business financing. Therefore great care should be taken to seek out and work with a trusted, credible, and experienced business financing advisor in this area of working capital and cash flow.
It is therefore recommend that you ensure you have key basics under your belt when you make the ultimate choice of a receivable financing partner. It is not as complex as it seems -it’s a case of knowing who owns the firm (many firms are only branch offices of foreign subsidiaries), how are they funded themselves (don’t forget you are relying on them to fund your company) and there is one final critical, and we cant over emphasize ”critical ‘issue – how will they treat your customers If you have any basic knowledge of factoring in Canada you should be aware that if you pick the wrong factoring partner there is a significant amount of what we call ‘ customer intrusion’ that will backfire on you . As a business owner of financial manger customer relations and long term good will are important to you.
There are two kinds of factoring in Canada. If you don’t know those two choices, and choose the wrong one you are at the risk of significant customer goodwill erosion. That is because ‘most ‘of the factoring in Canada is done on what is known as a full notification type of financing. The factor firm validates your invoices, notifies customers that the funds are to be remitted to them directly, and quite often corresponds in writing with you customer re collection of the amount that is due your firm.
The legal concept behind factoring in Canada is that it is the ‘ sale ‘ of your receivables, you receive the cash for that a/r almost the same day you generate the receivable, the other side of the coin is that receivable no long belongs to you . You have monetized it or sold your rights in that receivable. When you have a bank line of credit the receivables are held as collateral, they are no ‘sold ‘per se to your bank. That’s the main difference.
Ultimately you want to be in a position to enjoy the full benefits of factoring in Canada – These are:
– Instant cash for your receivables when you bill
– Access to unlimited credit for your sales
– A minimum of customer intrusion and a maximum of business good will in all customer dealings and collections.
If you have the right factor firm as a partner your total financing costs should be clearly understood and laid out to you (factoring can be expensive if not negotiated properly); you should receive immediate prompt funding on your receivables, and, as importantly, you should be able to pick and choose what invoices you wish to factor or finance.
We must add that we recommend a facility that allows you to bill and collect your own receivables without any level of customer intrusion – that is when factoring, in our opinion, works best.
So we have taken you through a myriad of technical issues on what was already somewhat of a mysterious of mis understood subject, factoring financing in Canada. So remembering our golden rule should help you avoid the pitfalls of your financing decision vis a vis a receivable financing facility – pick the right partner, one who is ethical, credible, has references, has access to funding, and will respect your customer relationships . That’s a solid cash flow and working capital business financing strategy!